The Next Marissa Mayer Might Move to South Dakota

By

David Weidner

July 18, 2012 7:36 p.m. ET

Marissa Mayer's decision to lead Yahoo Inc.YHOO-2.00% probably wasn't about the money. After all, as one of the original 20 employees of Google Inc., she is a comfortable member of the 1% with a net worth estimated at more than $300 million.

But for many people who choose to live and work in Silicon Valley, it is very much about the money, or at least the potential to make a lot of it. As one of America's few thriving industries, technology is the modern equivalent of the California gold rush, a place where a little risk and a lot of luck can quickly make you rich.

We're told all of that opportunity and entrepreneurial spirit could disappear if Californians approve Proposition 30, which would raise the state sales tax and increase taxes on Californians making more than $250,000 annually.

Such an increase would drive away potential Ms. Mayers to states with friendlier tax policies, critics of the proposal say. Silicon Valley could very well relocate to Alaska, South Dakota or Texas given their lack of state income taxes altogether.

Taxes on the wealthy aren't a new issue, nor are they simply a California issue. Nationally, the choice between Mitt Romney and President Barack Obama is ostensibly a choice between lowering or raising taxes on the wealthiest Americans.

Meanwhile, other states have grappled with raising income taxes for the wealthy. New York passed a $1.9 billion tax increase on those making more than $300,000. But that was actually a tax cut, replacing the millionaire's tax, which expired in 2011.

By contrast, California's Proposition 30, which is a combination of plans by Gov. Jerry Brown and a teachers' union, stands out for many reasons. For one, it's the only tax-the-rich measure that will go before 17.2 million registered voters. If California were its own nation, it would rank eighth in the world in gross domestic product. (Texas would rank 15th, while New York would be 14th and Florida 20th.)

In other words, for all the stereotypes about California being a liberal, welfare state, it's capitalist enough to outrank Spain, India, Canada and Australia on the global stage.

Moreover, Proposition 30 isn't a mixed bag like New York's effort last year. For those earning $250,000 to $300,000, state income taxes would rise 9.7%. The highest bracket, those earning more than $1 million annually, such as Ms. Mayer, would see a 22.6% increase. (The marginal tax rate would go to 13% from 10%.)

The rate would affect 34,000 taxpayers at the top tax bracket and 400,000 taxpayers overall, according to the California Franchise Tax Board.

Much of the debate about Prop 30 is about where the money will be spent. But the more intriguing part of the debate is: How will Prop 30 affect the present and future Marissa Mayers of California? Will the young, affluent and creative entrepreneurs leave?

It's true that there have been some high-profile cases involving the rich and taxes. Among them are Eduardo Saverin, a Facebook Inc.FB-1.26% co-founder, and songstress and socialite Denise Rich. Critics say they renounced their U.S. citizenship to avoid taxes. Both Ms. Rich and Mr. Saverin say that isn't so.

Most studies conclude that the rich usually don't change their behavior, residence or place of business when faced with higher taxes. A study by the University of Massachusetts, Amherst, published in March found no evidence that wealthy individuals or businesses moved out of states that raised taxes.

A study by the National Bureau of Economic Research, looking at data as far back as the 1920s, reached a similar conclusion.

Nevertheless, opposition to Prop 30 is strong. Molly Munger, a civil-rights lawyer who wants to restore funding to California public schools, has a rival plan that would raise taxes on all but the poorest Californians.

San Francisco Chronicle columnist Debra Saunders argued that Californians already have some of the highest sales and income taxes in the country. She also pointed out that the 1% wealthiest Californians paid 37% of the state's income tax in 2009.

Proposition 30 "would drive golden geese out of the state. Sure, most families earning $500,000 or more aren't going to move over a lousy $5,000," Ms. Saunders wrote in March. "But moguls who make 20 times that and own multiple homes just might decide to migrate. And there go all their tax dollars."

Californians who have seen class sizes increase, parks close and aid programs cut aren't convinced—or are at least willing to risk it. Proposition 30 has lost some support, but a poll last month still gave it an 18-point lead over the opposition.

It is as if Californians are calling the bluff of those present and future Ms. Mayers.

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